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Wednesday 12 December 2012

There is, of course, a very plausible model of why higher taxes can help promote prosperity: jobs are not created by wealth (it’s actually the other way around: wealth is created by jobs). Jobs are created by demand. Enmployers don’t hire people because they have money, they hire when — and only when — there is more demand for their product than they can meet with their existing work force. So it is no coincidence that prosperity coincides with high marginal tax rates (and, I might add, strong labor unions). The best way to generate demand is to, as conservatives like to say, “broaden the base” and operate under rules that benefit the middle class and poor even if this comes at the expense of the very rich. This is because the less money you have, the more of it you spend as a percentage of your income. A single person can only consume so much, so a million dollars in the hands of one person produces less demand (and hence fewer jobs) than the same million in the hands of, say, ten people. Rondam Ramblings

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